How lending liquidity emerged as the latest driver for Australia’s housing market

By RMIT University's Peng Yew Wong (PhD), Kwabena Mintah (PhD), Woon-weng Wong (PhD) and Kingsley Tetteh Baako (PhD)

New research has found that lending liquidity has emerged as the latest significant driver for Australian housing market performance, especially in times of Black Swan Events such as the GFC and the COVID-19 period.

Read the research here.

The Australian housing market is experiencing one of the most turbulent periods since the GFC in 2008. Since 2018, house prices have fluctuated rapidly amid critical events such as the Royal Banking Commission Enquiry, the COVID-19 pandemic followed by a series of government fiscal and monetary interventions.

At the date of this report, the house prices are back on a downtrend attributable to the RBS’s rate hike actions. The volatility stemmed from these mega events implicates the housing market dynamic significantly and studies on the emerging drivers of the Australian market have never been so crucial.

The authors monitored the Australian housing market since the GFC. The econometric modellings deployed analysing ABS’s and RBA’s data (2003 – 2021) revealed a consistent trend, that there were clear signs of diminishing significance on some traditional housing market determinants such as employment, GDP growth, stock prices, income level and immigration.

At the height of BSEs COVID-19 period, QE-stimulated “lending liquidity” has emerged as the latest significant driver for the Australian housing market performance pushing house prices to new hikes. The suggestion is that despite the negative impact of BSEs on fundamental drivers of housing prices, lending liquidity stemmed from the QE measures overshadows them when deployed. With this discovery, the study on BSEs, structural change and QE has become relevant and imminent.

The research team conducted in-depth interviews with the industry leaders, senior government officials, senior economists and academia assessing the multi-dimension implications of BSEs, structural changes and QE on the Australian housing market. The results are equally revolutionary. As the human race faces ongoing climate change challenges, the distinction between BSEs and Structural Change continues to narrow due to the increased frequency of artificial and natural disasters. BSEs were perceived “asserting” its significance and fitting into the definition of structural change drawing from their pro-long change and implications.

It is anticipated that Australia will be witnessing more unconventional monetary policies like QE being deployed to weather the adversary economic impacts brought about by both artificial and natural disasters in the future. With the successes of QE revitalising the world economies worldwide, the RBA will likely implement unconventional monetary policies alongside the Commonwealth’s fiscal policies to counter the adversity brought about by future BSEs. The Australian housing market is already experiencing its most volatile period since the beginning of this century, with many predictions falling flat on the accuracy, primarily due to the emergence of new drivers in the housing market.

So why are they important?

BSEs are defined as highly improbable events and therefore, not expected to have an enormous impact and humans try to explain those events after their occurrence. COVID-19 pandemic, a BSE has occurred, and it is still evolving as we speak. It has caused significant economic disruption and affected households’ health and social life. Due to the enormous impact of BSEs on the economy, the RBA and the Australian government deployed unconventional QE and fiscal policies as strategies to accelerate the ailing economy. The volatility stemmed from these mega events implicates the housing market dynamic significantly and studies on the emerging drivers of the Australian housing market have never been so crucial.

And what do our findings mean for Australians?

Within the Australian residential property sector, including the public, investors and the general “mum and dad” participants can benefit immensely from this research. The Australian government is set to and will continue to implement both fiscal and monetary policies (conventional and unconventional) to intervene in the country’s economy during future BSEs, which are more likely to be more frequent than previously.

In times of anticipated significant economic turmoil caused by future BSEs, residential property buyers are adequately informed of the potential implications from both the BSEs and resultant government interventions. Similarly, property professionals can use the findings of this research to gauge the performance and implications brought about by the BSEs and government policy interventions.

In conclusion, here’s our recommendations:

  • BSEs are inevitable and may occur more frequently despite their rarity in nature historically. The Australian government policy interventions including unconventional monetary policies, will be deployed often to weather the adversaries brought about by these BSEs. The market participants, including the government, should be informed of the impact and implications of the BSEs and policy interventions for their ongoing decision makings during this climate change era.
  • Although unconventional and controversial, QE was viewed positively by the most senior market professionals when deployed timely and wisely in conjunction with the Commonwealth’s fiscal policies. It is anticipated that QE will remain a useful tool in RBA to weather the future BSEs adversaries.
  • Lending liquidity has proven a significant housing market determinant in this study, evident by both major events of the Royal Banking Commission and the COVID-19 pandemic. The government, including the Commonwealth, the Australian Prudential Regulation Authority (APRA) and the RBA, can influence house prices, thus housing affordability, by controlling the monetary lending liquidity, among other intervention policies.

Learn more about the research here.

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